Question

Opportunity costs include those cash inflows that could be generated from assets the firm already owns if those assets are not used for the project being evaluated.

Answer 1

True Opportunity costs include those cash inflows that could be generated from assets the firm already owns if those assets are not used for the project being evaluated.

What is Opportunity costs?

The opportunity cost of a particular activity option in microeconomic theory is the loss of value or benefit that would be incurred by engaging in that activity, as opposed to engaging in an alternative activity that offers a higher return in value or benefit.

The value of the next best alternative or option is referred to as the opportunity cost. This value may or may not be monetary. Value can also be measured using other criteria such as time or satisfaction. One formula for calculating opportunity costs could be the ratio of what you give up to what you gain.

The increasing opportunity cost law: As the production of one good increases, so does the opportunity cost of producing the additional good.

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